Picture of me taken when I was making home loans.
Long before I was out of college, I had begun my business career as a mortgage loan officer; first for a bank, later for another bank and then for a savings and loan.
That was in the days when savings and loans were perfectly set up and governed, so that they could pay a bit more interest on savings accounts than banks could, but were primarily restricted to making one to four family home loans.
Texas had a very strong homestead law. It was there to keep people from doing dumb things that would risk their family home. The equity, in the main, couldn't be taken away in bankruptcy. You couldn't borrow against the equity to buy a new truck or to pay off credit cards..
If you wanted to do home improvements, for an example, you could take out a second lien, however, it had to be for a rather modest amount of money, and the bank was bound by law to make sure that's exactly what that money was used for, even to the point of seeing the receipts and visiting the home after the improvements were made.
From time to time, a fellow --- always, it seemed to me to be a man -- would sit down at my desk and asked that we refinance his home so that he could take out some or all of the equity and use it for another purpose.
An incredible number of them seemed to want to buy a bar or a tavern or a restaurant with their new-found money. Others saw themselves driving a new Winnebago on their way to fishing trips all over Kingdom Come.
I'd say, "We can't do that, but why don't you tap your savings to buy that bar or Winnebago?"
The bottom line always was the same: The equity in their home was the only real asset that they had. Savings was either minimal or nonexistent. One more reason they shouldn't be allowed to spend their home's equity.
So I'd propose this solution: "How about you and your wife sell your home, take out all but 5%-10% of the equity, and use that to buy another home and with a new mortgage? I promise that we'll probably make you that loan. Then you'll have all of that money to spend as you'd like."
Not one time. Never once. No, not one time did any of them ever come back after selling their home, and having a contract to buy another.
I always envisioned them telling their wife their plan, and she saying back to him, "Henry, have you lost your mind? No!"
I don't personally think that the current rules and regulations that allow homeowners to borrow against their equity for other purposes is a good thing. In the main, I don't believe it is in the best interest of the homeowner or the country, for that matter.
Often it seems to leave homeowners with nothing in the end when they really need it.
How do you see it?
Realtor - Broker
Keller Williams Dallas Premier
Direct: 214 503-8563